Nine top starter stocks for beginning investors.
For most investors, a passive approach to investing has proven to be the most reliable and easy way of building long-term wealth in the stock market. This generally entails buying a low-cost, globally diversified portfolio of index exchange-traded funds with low fees. There is good evidence to suggest that this approach will beat most active stock pickers or even professional fund managers over time. That being said, allocating a reasonable portion of your portfolio to stock picking can be a fun way of potentially beating the market over time. Instead of buying speculative stocks, beginner investors should focus on buying the stocks of well-known, established companies they are familiar with. Think about the everyday items and services you buy daily and invest in stocks of their parent companies. These companies often have excellent business models, strong financials and competitive advantages. Here are nine of the best stocks to buy for a starter stock portfolio.
Berkshire Hathaway Inc. (ticker: BRK.B)
The flagship company of Warren Buffett and Charlie Munger is an excellent core holding for any new investor. Under their leadership, Berkshire Hathaway has become the world’s premier financial conglomerate, with stakes in insurance, energy, utilities, rail, food, consumer products and financial services. The company also maintains a sizable investment portfolio, with top holdings consisting of Apple Inc. (AAPL), Bank of America Corp. (BAC) and Coca-Cola Co. (KO). From 1996 to present, Berkshire Hathaway achieved a compound annual growth rate, or CAGR, of 11.6%, versus the 9.3% CAGR of the S&P 500 index. Through April 5, Berkshire Hathaway is up 15.3% in 2022, compared to the 5.1% loss suffered by the S&P 500. Investing in Berkshire Hathaway gives you easy exposure to a portfolio of Buffett’s hand-picked stocks, allowing you to reap the benefits of his long-term value investing philosophy with no effort.
Perhaps you stumbled on this piece by using Google. Alphabet has been a tech mainstay for the last few decades, with its Google search engine, Chrome web browser, Play Store for apps, Android smartphone operating system and cloud-based services leading the way. In the last few years, Alphabet has expanded its advertising business heavily, with segments like Adwords, Adsense and Google Local bringing in enormous revenue. As a result, the company continues to smash earnings and revenue guidance, with a stunning year-over-year diluted earnings per share growth of 37.6% in the fourth quarter. Fourth-quarter revenue and net income came in at $75.3 billion and $20.6 billion, respectively. Since 2005, Alphabet has grown at a CAGR of 21.5%, compared to the 10% annualized returns seen by the S&P 500.
Microsoft Corp. (MSFT)
Microsoft Windows, Microsoft Office 365, Internet Explorer, Surface Pro, OneDrive, Xbox, Halo, Gears of War — the products and services provided by Microsoft are incredibly well-known and beloved by consumers worldwide. With the increasingly interconnected nature of our society via the “internet of things,” large software and technology companies like Microsoft have become indispensable for enabling our lifestyles. This has translated into a history of excellent earnings and profitability for the company, with year-over-year diluted earnings-per-share growth of 22.3%. Microsoft is a cash machine, having achieved $18.8 billion of net income and $8.62 billion of free cash flow in the December 2021 quarter. Since 1987, Microsoft has posted a CAGR of 25.4%, compared to the 10.9% seen by the S&P 500.
Apple Inc. (AAPL)
Some of the most innovative and popular electronic consumer products in the last decade have come from the brilliant minds at Apple. These include well-known MacBooks, iPods, iPhones, iPads, the App Store, Apple Watch, iCloud and AirPods. What’s amazing is that Apple has been around since 1976 and still manages to continually innovate year after year, drawing in ever-increasing numbers of new and loyal customers with their expanding line of products and services. The company is incredibly profitable, with an operating margin of 31% and net income of $34.6 billion in the December 2021 quarter alone. Apple also pays a modest dividend yield of 0.5%, but with strong payout growth of 15.8% over the past five years. Since 1986, Apple has achieved a CAGR of 23.8%, compared to the 11.1% seen by the S&P 500.
Visa Inc. (V)
Forget cash. When it comes to the global economy, payment processing and technology companies like Visa are on the rise. Visa’s payment network helps facilitate monetary transactions in over 200 countries and 160 currencies. Anybody who uses a debit, credit or gift card is likely using Visa’s transaction network. Founded in 1976, Visa has become a mainstay in most consumers’ lives. Visa’s role as an intermediary allows it to benefit greatly from the interconnected nature of the global economy, taking a slice from every monetary transaction that occurs on its platform. As a result, Visa has continuously smashed earnings and revenue guidance. Since a 2008 initial public offering, Visa has also outperformed the S&P 500, with a CAGR of 24.7% vs. 15.1% for the benchmark.
Amazon.com Inc. (AMZN)
Founded in 1994 as a humble online bookstore by Jeff Bezos, Amazon has since grown to become a massive global online retailer. Known colloquially as “the everything store,” Amazon offers a wide range of products, with subscriptions available for expedited shipping and other perks. Amazon has also expanded into other business ventures, including smart home systems like Ring, Echo and Alexa and cloud-based technology infrastructure like Amazon Web Services. While Amazon does not have the greatest operating margin, at just 5.3%, it does excel at creating shareholder value, with return on equity of 28% and return on assets of 9%. The company recently posted year-over-year diluted EPS growth of 98%, with $137.4 billion of quarterly revenue over the 2021 holiday quarter. From 1998 to present, Amazon has demolished the benchmark stock market index, boasting a CAGR of 31.1% vs. 6.9% for the S&P 500.
BlackRock Inc. (BLK)
Asking the question “Where does the money go?” will inevitably lead readers to BlackRock. As the world’s largest money manager, with an incredible $10 trillion in assets under management, or AUM, BlackRock has positioned itself to be at the forefront of the capital markets. With over 70 offices in 30 countries, BlackRock provides institutional and retail investors with asset management services and products. On the retail side, this includes retirement plans, mutual fund and exchange-traded products, savings plans, and ESG investing. Institutional clients include pension funds, university endowments, governments and corporations. The company pays a healthy dividend yield of 2.6%, with its payout growing 32.2% annually over the last five years. Investing in BlackRock since its IPO in 2000 would have netted you a CAGR of 20.9% vs. the 7.1% annualized return of the S&P 500.
JPMorgan Chase & Co. (JPM)
As America’s largest bank, with over $3.29 trillion in AUM, JPMorgan Chase is regarded as a leader and benchmark for the sector’s overall performance. The result of a merger in 2000 between JP Morgan and Chase National Bank, JPMorgan Chase has since grown to be the fifth-largest bank in the world in terms of total assets. The bank offers multiple business lines, including investment banking, asset management, wealth management, treasury services, retail and commercial banking, and credit card services, in more than 50 countries. The company currently trades at an attractive valuation with a price-earnings ratio of about 8.7. JPM also pays a decent dividend yield of 3%, with a great five-year dividend growth rate of 49.5%. JPM looks primed to perform well in 2022 in a rising-interest-rate environment that may give bank stocks a tail wind.
Walt Disney Co. (DIS)
Whoever came up with the phrase “Never bet against the mouse” was on to something. As a media and entertainment conglomerate, Disney’s influence worldwide is hard to miss, with an enormous library of critically acclaimed TV shows and movies, famous theme parks and resorts, merchandise, cable channels and radio stations. Disney’s network effect is owed to its popular assortment of company-owned, independent and joint-venture studios such as Lucasfilm, Marvel Entertainment and Pixar Animation Studios. Although its revenue and earnings were hard-hit by the COVID-19 pandemic, Disney has since staged a decent recovery, with quarterly revenue and net income for the December 2021 period hitting $21.8 billion and $1.15 billion, respectively. Even with a recent dip, Disney has beaten the S&P 500 on a trailing basis since 1986, with a CAGR of 12.9% vs. 11.1%.
Best stocks to buy for a starter portfolio:
— Berkshire Hathaway Inc. (BRK.B)
— Alphabet Inc. (GOOG, GOOGL)
— Microsoft Corp. (MSFT)
— Apple Inc. (AAPL)
— Visa Inc. (V)
— Amazon.com Inc. (AMZN)
— BlackRock Inc. (BLK)
— JPMorgan Chase & Co. (JPM)
— Walt Disney Co. (DIS)
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9 of the Best Stocks for a Starter Stock Portfolio originally appeared on usnews.com
Update 04/06/22: This story was published at an earlier date and has been updated with new information.